From Here To Ubiquity - Industry Trend or Event

Industry Standard, The, June 18, 2001 by David Lake

LOW PRICES HELPED DVD SET A RECORD FOR NEW-GADGET ADOPTION.

In 1972, Sony introduced the first home videocassette recorder in the United States, the U-Matic. Two years later, the company logged sales of 34,000, with an average wholesale price of almost $600 - the equivalent of more than $2,000 today. By 1988, the average wholesale price for VCRs had plummeted to $265 -- about $400 today -- and more than half of U.S. homes had purchased one. Now, of course, a VCR retails for less than $100. You can practically buy one at the checkout counter of your local supermarket. And 94 percent of U.S. homes have one.

The VCR is, in the language of the academy, an innovation that has fully diffused. It is almost as common as refrigerators and telephones.

Still, it took a quarter of a century for that to happen -- an eternity by today's standards. Consider newer technologies like the cell phone, which wormed its way into 10 percent of U.S. homes in nine years. Or think of the breakneck adoption speed of DVD, widely regarded as the most successful format launch in consumer electronics history.

Many of the devices generating media buzz today -- digital cameras, personal video recorders, MP3 players -- have yet to hit the 10 percent adoption mark. In fact, handheld computers and MiniDisc players aren't even tracked yet by the Consumer Electronics Association. And the road to ubiquity is littered with flameouts. (Remember laserdiscs?)

Why is it that some of the newer consumer electronics gadgets are catching fire faster than the older ones?

A key factor to consider is price. Manufacturers have yet to find a magic formula to tie price levels to product acceptance.

But the rapid acceptance of the DVD and many other consumer electronics is clearly related to an equally rapid reduction in price. The average wholesale price of a DVD player in 1997 was almost $490. Today, the average device sells for less than $200. Two years ago, just 3 percent of American households had one. That's increased fivefold, and analysts expect sales to continue growing rapidly.

Traditionally, the industry priced its wares based on development costs, including product research and manufacturing expenses. Those costs were passed on to consumers, slowing the rate at which prices Cell.

As technology cycles accelerate, manufacturers no longer have the luxury of waiting a few decades to find the optimum price or to recoup initial costs. A different pricing model is gaining momentum. Instead of waiting to lower prices, the industry is taking an early hit on profits and setting cut-rate prices to generate enough demand to eventually make a profit.

Slashing costs to gain market share is nothing new. Says InfoTech Research analyst Ted Pine, "the Internet took this idea to a greater extreme." And as many Web pure-plays proved, such an approach can be a winner-takes-nothing strategy. If a company prices its product to the mass market and consumers don't buy it, that firm is out of luck.

Of course, if nobody wants the thing in the first place, price is the least of your problems.

                    DVD Quickly Reached 10 Percent,
                    but TV Reached the Masses Faster
                       Years for Devices To Reach
                        Selected Adoption Levels
                     10 Percent of U.S. Households
DVD                  4
Black-and-white TV   5
Personal computer    5
CD player            6
Cordless telephone   6
Cell phone           9
Pager                9
VCR deck            11
Color TV            14
Source: Consumer Electronics
Association, January 2001
Note: Table made from bar graph
                     25 Percent at U.S. Households
Black-and-white TV   6
CD player            9
Pager               11
Cordless telephone  11
Cell phone          12
Personal computer   12
VCR deck            13
Color TV            16
Note: Table made from bar graph
                     50 Percent of U.S. Households
Black-and-white TV   9
CD player           12
VCR deck            15
Cordless telephone  15
Cell phone          16
Color TV            20
Personal computer   21
Note: Table made from bar graph
                   Sales to Top $100 Billion in 2002
                       U.S. Consumer Electronics
                           Manufacturer Sales
          Sales in Billions  % Percent increase over
                                  previous year
1996            $68.1                  N/A
1997            $71.9                   6%
1998            $75.8                   5%
1999            $81.9                   8%
2000            $90.1                  10%
2001 [*]        $95.6                   6%
2002 [*]       $101.8                   6%
2003 [*]       $108.7                   7%
2004 [*]       $116.5                   7%
(*.)Projected. Source: Consumer
Electronics Association, January 2001
Note: Table made from bar graph
                   TV, Radio and VCRs Are Most Common
                    Current U.S. Household Adoption
                      Rates for Selected Products
Television         98%
Home radio         98%
VCR                94%
Answering machine  77%
Cellular phones    59%
Personal computer  58%
Home CD player     57%
Modem              55%
Pager              40%
Camcorder          39%
DVD                15%
Source: Consumer Electronics Association,
January 2001
Note: Table made from bar graph
              Many High-Tech Devices Have Yet to Reach 60
                            Percent of Homes
                U.S. Household Adoption and Manufacturer
                 Sales for Selected High-Tech Consumer
                              Electronics
                                Year Introduced
Device                           to Consumers
Gaming hardware                      1972
Personal computer                    1975
Computer printer                     1978
Modem                                1980
Cellular phone                       1983
Digital camera                       1995
Set-top Internet access device       1996
DVD player                           1997
MP3 player                           1998
Personal video recorder              1999
                                U.S. Household Adoption
Device                                   1998            1999  2000
Gaming hardware                           40%             42%   44%
Personal computer                         48%             54%   58%
Computer printer                          44%             49%   54%
Modem                                     38%             51%   55%
Cellular phone                            44%             51%   59%
Digital camera                             2%              4%    8%
Set-top Internet access device             1%              2%    3%
DVD player                                 1%              5%   15%
MP3 player                                N/A             N/A    5%
Personal video recorder                    0%              0%    1%
                                Manufacturer Sales to U.S. [*]
Device                                       2000
Gaming hardware                              $2.7
Personal computer                           $16.4
Computer printer                             $5.1
Modem                                        $1.6
Cellular phone                               $3.2
Digital camera                               $2.3
Set-top Internet access device               $0.2
DVD player                                   $1.7
MP3 player                                   $0.2
Personal video recorder                      $0.6
Device                          2001 (projected)
Gaming hardware                       $3.2
Personal computer                    $16.6
Computer printer                      $4.8
Modem                                 $1.4
Cellular phone                        $3.7
Digital camera                        $2.9
Set-top Internet access device        $0.2
DVD player                            $2.4
MP3 player                            $0.2
Personal video recorder               $1.0
Adoption of handheld computers
and MiniDiscs players not yet
gathered by the CEA.
(*.)In billions.
Source: Consumer Electronics
Association, January 2001
                     Americans Want Their DVDs ...
                   Percent of Consumers Likely to Buy
DVD                          17%
Digital broadcast satellite  12%
Interactive TV               10%
Web terminal                  9%
Portable handheld device      9%
MP3 player                    9%
Internet gaming console       8%
Based on a survey of 1,000 U.S. adults
who rated their likelihood to buy each
device on a five-point scale.
Source: IDC, March 2001
Note: Table made from bar graph
                      ... But Not Electronic Books
                  Percent of Consumers Unlikely to Buy
MP3 player for car       87%
Electronic book          86%
Screenphone              82%
Internet tablet          82%
High-definition TV       81%
Internet gaming console  76%
Note: Table made from bar graph